Managing cashflow is one of the biggest challenges for nine out of 10 UK small businesses. Late customer payments and missed purchase invoices can mean you don’t have an accurate picture of your business performance. 
Here’s some advice to help you effectively manage your cashflow. 
Look ahead – you probably have a general idea of your regular income from invoices and investments and expenses such as payroll, bills, purchases and finance costs. It’s important to anticipate other expenses and to be aware of the implications of late payment by some of your customers. By making sure you know what’s around the corner you can plan your business finances more efficiently and avoid the need for costly short-term loans. 
It’s also important to make sure you issue your sales invoices as soon as work is completed or products are delivered. Ideally, offer online payment methods to speed things up and use the automated reminders available with many accounting software packages so you can spend less time chasing invoices. 
Make sure you have a reliable system for tracking payments and that your terms are clear to your customers. Review your terms and consider asking for full- or part-payment in advance. Changing your terms to payment within 14 days could allow you to avoid your customer’s monthly payment runs. You will no longer have to wait for nearly 60 days if you miss the monthly deadline. 
Make sure your terms and conditions set out the penalties for late payment and have a clear process in place for pursuing late payments
Create a cashflow forecast – sending out plenty of invoices isn’t a guarantee that your business is profitable or financially secure. A cashflow forecast will give you a clear view of the amount of cash and working capital you need to run your business. It can help you to anticipate what might happen if payment on a major contract is delayed or if you lose an important client. 
Check your inventory – a significant amount of money could be tied up in your stock so it’s important to review it regularly and to have plans in place to sell slow-moving items or to have the right stock levels for seasonal rushes. If some of your stock has a limited shelf life make sure that you aren’t buying too much at a time. 
Review your contracts – depending on your terms and conditions you might have several months’ notice before a regular customer moves on. However, in reality there will always be some gains and losses in your customer base so it’s worthwhile estimating how many new customers you are likely to need to maintain your position or grow. Then you can plan your marketing activities to keep on track. 
Use projections – you don’t have to have a crystal ball, but you can review the implications of certain events like increases in the cost of materials or employee wages or delays in supply. Observe your market sector and review your position regularly to minimise the risks you face. 
Assess your costs – one way to improve profitability is to reduce your costs so you should also regularly check what you’re spending to see if you can save some money. You can also look forward to a time when you might need new premises or extra team members so you can plan for the additional expenses. 
Be flexible – having a clear view of the financial health of your business means you will be ready to take advantage of opportunities or to respond to changes in your market conditions. A solid financial plan can ensure your business stays as flexible as possible. You can be ready to buy new equipment, test different products, or join forces with another business. 
Evaluate cashflow finance – you can take away a lot of the stress of running a business by using cashflow finance. You can stabilise your cashflow by taking advantage of financial products and services that can help you to bridge short-term funding gaps. Trade finance is common for import or export businesses but any businesses that experience delays between selling goods and receiving payment might want to consider this option. Alternatively, invoice finance can give you up to 85% of the value of an invoice immediately to reduce pressure on your cashflow. Your funder will collect the money owed and pay you the balance after deducting their fees. 
If you would like to know more about how cashflow management can support your business please get in touch
Tagged as: Cashflow Forecast
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